Felix Salmon


Felix Salmon
Dec 10, 2010 06:55 UTC

Utter genius Wire matrix — Mighty God King

Orszag takes that multi-million-dollar vice-chairman gig at Citi — Reuters

“Mary was trying to avoid the temptation that would have made her behave in a kind way” — Ariely

Hey Treasury, now that you’ve redesigned your website, you wanna get to work on the NCUA’s? — NAFCU

Anglo Irish Bank CDS Auction Results — Creditex

TSA gratuitously humiliates the Indian ambassador — India Times

Super-easy way to disable Tynt (which has now been adopted by the WSJ): just go here — Tynt

Why libs don’t like the tax deal — Ezra

I spy one Hirst, one Warhol, and three Richard Princes in these photos of a Bond St rental. Do they come included? — Curbed


The Tynt optout doesn’t work outside the USA. So I have told AdBlockPlus on my Firefox browser to block all scripts, css’s, images, and everything associated with the domain tynt.com. It works.

Posted by Setty | Report as abusive

Downward mobility datapoint of the day

Felix Salmon
Dec 10, 2010 01:02 UTC

If you’re white, and you were raised in the bottom 60% of the income distribution, you have a 22% chance of being in the bottom 20% as an adult.

If you’re black, and you were raised in the bottom 60% of the income distribution, you have a 49% chance of being in the bottom 20% as an adult.


@Danny. Sorry for the delay in responding. Please see http://www.answers.com/topic/single-pare nt-families for some information on single parent families. I have great respect for most mothers who raise their children alone and very little for fathers who abandon them. Education is so important in our post-industrial society. The drop out rate is much higher for children of single parent families. This can’t help but affect how well they do later in life.

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The effect of unemployment insurance on unemployment

Felix Salmon
Dec 9, 2010 22:06 UTC

Last week, when I wrote my post on how to boost employment, the list started off unambiguously:

The first—and this can’t be stressed enough—is simply extending the federal unemployment extensions. As Menzie Chinn notes, the CEA has scored this, and the numbers are enormous: already, the program has increased the level of employment by 793,000 jobs. If the extensions are kept dead, there will be 593,000 fewer jobs in a year’s time than there would be if they were resuscitated, including more than 46,000 jobs in Florida and more than 26,000 jobs in Michigan.

This is not intuitive, especially to economist types who think that incentives matter and that at the margin, paying people to remain unemployed is not going to increase their chances of getting a job. But the fact is that those unemployment benefits are spent, and the extra economic activity naturally creates employment.

There is of course some effect by which paying people to stay unemployed will increase their chances of doing so. Rob Valletta and Katherine Kuang, of the San Francisco Fed, did the math back in April, concluding that the effect is “relatively modest”:

The question arises whether this extended availability of UI benefits has contributed to a lengthening of unemployment spells because jobless workers are staying in the labor force longer in order to continue collecting benefits. Such a dynamic could raise the unemployment rate. However, analysis of data on unemployed individuals decomposed by their reason for unemployment, which affects their eligibility for UI, suggests that extended UI benefits have had a relatively modest effect. We calculate that, in the absence of extended benefits, the unemployment rate would have been about 0.4 percentage point lower at the end of 2009, or about 9.6% rather than 10.0%.

Peter Coy has taken a detailed look at the interplay between the two effects:

Do the extra checks make unemployment higher than it would otherwise be by paying people to sit at home? Or do the checks sustain growth by supporting the spending power of households with out-of-work breadwinners?

In truth, unemployment benefit extensions do both—they raise the jobless rate a bit, and they make the economy grow faster. What’s clear is that extending jobless benefits makes more sense when the unemployment rate is exceptionally high, as it is now, at 9.8 percent in November… Because aid to the jobless is almost immediately spent (as opposed to tax refunds for the wealthy), it is the most effective means of stimulating demand.

Coy’s “bottom line” is clear: “Although the Obama-GOP tax deal extends unemployment benefits, it probably will not dissuade many jobless from seeking work.”

This all adds up to something reasonably clear. Unemployment insurance isn’t only just from a fairness perspective, it’s also extremely effective as stimulus. Any effect whereby it encourages people to stay unemployed is, in comparison, modest.

Which is why it’s very odd to find Kelly Evans, in the WSJ, writing the exact opposite.

More jobless benefits, more unemployment.

A likely rise in the U.S. jobless rate is the unfortunate reality of the government’s move to fund extended unemployment benefits for another 13 months.

The effect probably won’t be huge, but it will be significant. And it may well hamper any recovery in investor and business confidence.

Evans isn’t very good at math*:

Individuals not actively searching for work or willing to take available jobs may claim they are unemployed in order to receive benefits. That could artificially boost the size of the labor force, which is used to determine the unemployment rate.

Well yes, the labor force is indeed used to determine the unemployment rate, but it’s the denominator in that calculation. If the denominator goes up, the rate goes down. The problem is rather that in any ratio less than 100%, if you increase the numerator and the denominator by the same amount, then the ratio goes up.

Evans concludes:

Policy makers are hoping that extending benefits—along with other tax breaks—will generate enough short-term strength in spending and growth to overshadow any rise in the unemployment rate.

That may prove wishful thinking. The late rapper Notorious B.I.G. probably put it best: “mo’ money, mo’ problems.”

Evans’s piece elicited a smart smackdown from Zack Roth, who actually went to the trouble of phoning up the SF Fed’s Rob Valletta:

“These separate effects act in opposition to one another,” said Valletta. So the question becomes: Which effect is greater, in our current situation?

On this, Valletta was clear. In the current weak labor market, he said, the micro effect is relatively small. “I think the macro economic effects, in terms of reducing the unemployment rate, outweigh the micro effects that increase the unemployment rate,” he said.

This makes perfect intuitive sense, since the macro effects right now are huge, on the order of $60 billion being spent, and 600,000 extra jobs created. It really doesn’t seem plausible, in this economy, that more than 600,000 people will stay out of work and live on their unemployment checks rather than accept a job they would have taken in the absence of those checks; neither does it seem plausible that injecting $60 billion into the economy would send the unemployment rate up.

After Roth’s piece appeared, Evans responded, saying that “we’re all making the same point re: jobless benefits.” (It’s fantastic, by the way, that she’s happy and willing to join the public debate over her stories.) Roth was not convinced, replying that “your point was jobless benefits boost unemployment. everyone else’s is that they cut unemployment. seem like different points.” And so Evans clarified, here and here:

The disagreement is over net effect; will extending UI do enough for growth to overcome the rise in unemployment?

I’m not that optimistic about growth. Extending UI helps growth; but enough to overcome upward pressure on UR?

This misses the point: extending UI would be a good idea even — especially — if growth were sluggish. It’s when the economy isn’t growing that you need to apply stimulus, if only to prevent it backsliding into a double-dip recession. Growth doesn’t need to be high in order for UI to create employment; it just needs to be higher than it would have been absent the extra benefits. If you’re “not that optimistic about growth”, that’s all the more reason to want the fiscal stimulus of extending UI.

Evans might be right that the US unemployment rate is going to rise rather than fall. But if the unemployment rate does rise, the reasons for that rise will be found in the macroeconomy as a whole. Blaming any such rise on the extension of unemployment insurance will be silly.

*Update: This passage was ill-written, or ill-advised, or both. When I reposted this at CJR, I changed it to say that “Evans isn’t very good at explaining the math of why more unemployed people add to the unemployment rate”. I probably shouldn’t have included it at all, though, it’s not central to my point.


It’s always interesting to hear the opinions of well-paid, employed critics debating what it is that motivates the unemployed. I know it is naive to expect only those without jobs should be allowed to pontificate about the issue of unemployment, but as someone who has been stuck down that road I find any suggestion that unemployed people prefer the barely livable pittance of unemployment benefits to actually having a job infuriating.


Posted by jacktrip | Report as abusive

Looking for financial-crisis criminal prosecutions

Felix Salmon
Dec 9, 2010 19:59 UTC

Jonathan Weil and Jesse Eisinger wrote very similar columns yesterday, about the way in which the latest batch of white-collar-crime prosecutions is seemingly an attempt to occlude the fact that none of the main culprits in the financial crisis have been prosecuted of anything. Meanwhile, Janet Tavakoli has come out with a presentation listing just some of the people who might be liable for prosecution here:


Much as I love the idea that Christopher Cox could be prosecuted as an accessory and accomplice, it’s probably easier to start with the bankers. Or maybe “easier” isn’t exactly the mot juste:

By all outward appearances, it seems the Justice Department either doesn’t want to prosecute systemically important frauds, or doesn’t know how. Or maybe it’s both.

It wasn’t always this way. More than a thousand felony convictions followed the savings-and-loan scandal of the 1980s and early 1990s. Some of the biggest kingpins, such as Charles Keating of Lincoln Savings & Loan, went to jail. With this latest financial crisis, there’s been no such accountability.

That’s Weil. Here’s Eisinger:

The most common explanation from lawyers for this bizarre state of affairs is that it’s hard work. It’s complicated to make criminal cases in corporate fraud. Getting a case that shows the wrong-doer acted with intent — and proving it to a jury — is difficult.

But, of course, Enron was complicated too… WorldCom’s Bernie Ebbers and Tyco’s Dennis Kozlowski are wearing stripes…

The most popular reason offered for the dearth of financial crisis prosecutions is the 100-year flood excuse: The banking system was hit by a systemic and unforeseeable disaster, which means that, as unpleasant as it may be to laymen, it’s unlikely that anyone committed any crimes.

Or, barring that wildly implausible explanation (since, indeed, many people saw the crash coming and warned about it), the argument is that acting stupidly and recklessly is no crime…

Just as it’s clear that not all bankers were guilty of crimes in the lead-up to the crisis, it strains credulity to contend no one was. Corporate crime is usually the act of desperate people who have initially made relatively innocent mistakes and then seek to cover them up. Some banks went down innocently. Surely some housed bad actors who broke laws.

There’s an irony here: the financial crisis was so sudden and so devastating that no one really had the opportunity or incentive to cover up their crimes. Cover-ups are always easier to prove and prosecute than the original crimes, after all. But in this case the crimes all happened more or less in plain sight: Tavakoli, for one, has been shouting “fraud” for years. And the bankers just say “oh no it isn’t” and carry on.

I tend to agree with Eisinger that the doomed prosecution of the two Bear Stearns hedge fund managers does not mean that prosecutions are impossible: it just means that if you’re going to try to prosecute, you’ll need a much more carefully-constructed case than the U.S. attorney’s office managed to cobble together. “You worked in a bank and you went bust” isn’t enough — but with time and subpoena power, it doesn’t have to be.

I suspect that we will see a criminal prosecution of Dick Fuld at some point, although as Eisinger points out it’s certainly taking long enough. A criminal prosecution of Angelo Mozilo is much less likely now that he’s settled his civil suit with the SEC. Stan O’Neal? Chuck Prince? Martin Sullivan? Going after those guys would require a degree of testicular fortitude which simply doesn’t exist anywhere in the Obama administration. There might be a handful of mid-level executives eventually — people higher up the food chain than Fabulous Fab, but well below CEO level. The top cats are sitting comfortably in a cloud of impunity, and they all have very good lawyers.

I’m reminded of a passage from Too Big To Fail:

Several weeks after Merill’s board had named Thain CEO, he was faced with an especially delicate task. Placing a call to his predecessor, Stan O’Neal (who had just negotiated an exit package for himself totaling $161.5 million), Thain asked if they might get together…

Thain knew that if there was one person in the world who could explain what had gone wrong at Merrill Lynch, why it had loaded up on $27.2 billion of subprime and other risky investments — what, in other words, had gone wrong on Wall Street — it was O’Neal.

“Well, as you know, I’m new, and you were the CEO for five years,” Thain said carefully. “I’d like to get your take, any insight on what happened here. Who everybody is, and all that. It would be very helpful to me and to Merrill.”

O’Neal was silent for a moment, picking at his fruit plate, and then looked up at Thain. “I’m sorry,” he said. “I don’t think I’m the right person to answer that question.”

Was O’Neal afraid that anything he said might be used against him in some kind of lawsuit? I daresay he was. He might have been greedy, but he wasn’t stupid.


bkhjon, how are those chinese stocks working out for you? Would love to know who you are blaming now.

Posted by Danny_Black | Report as abusive

The EU debunks the debt-speculation meme

Felix Salmon
Dec 9, 2010 16:36 UTC

Is the market in European sovereign debt rife with speculation? The NYT would have you think so. And indeed the EU was so worried about the possibility of manipulation in the sovereign CDS market that it commissioned a comprehensive report on the subject.

Wonderfully, Martin Visser of Dutch newspaper Het Financieele Dagblad managed to obtain a copy of the report, using the European equivalent of a FOIA request. His article is here; a Google-translated version is here; and the actual report — a 6MB PDF file, I’m afraid — is here. (For all of these links I’m highly indebted to @ldaalder.)

You can see why the EU might have wanted to keep the report secret: it concludes that the sovereign CDS market is a force for good, and that curtailing it in any way is likely to be a bad idea. Here’s part of the executive summary:

First, the results show that there is no evidence of any obvious mis-pricing in the sovereign bond and CDS markets. Second, the CDS spreads for the more troubled countries seem to be low relative to the corresponding bond yield spreads, which implies that CDS spreads can hardly be considered to cause the high bond yields for these countries. Finally, the correlation analysis shows that changes in spreads in the two markets are mainly contemporaneous. The vast majority of countries show now lead or lag behaviour, and when series are not changing contemporaneously, CDS and bond markets are basically equally likely to lead or lag the other. Furthermore, these relationships have been broadly stable over time.

The report goes on to look specifically at the idea of banning “naked shorting” in the CDS market:

Prohibiting naked positions in credit default swaps could dramatically impact the market. If the CDS market is reduced to hedgers only, market liquidity is likely to drop substantially…

Under a permanent naked CDS ban, CDS would possibly become more classical insurance devices, i.e. customised to closely-related exposure. This would reduce the market’s ability to trade credit risk and, make proxy-hedging impossible. As a result, the cost of bond market financing for the broader economy could increase…

Overall, it is not clear how the bond market would be affected by a ban on naked CDS. Moreover, there are substitute strategies to bet on a downturn in sovereign risk: sell a future on the bond, buy a put option, sell a call option, short sell the bond are usual investment techniques…

Using temporary bans could prove to be an efficient way of dealing with short-term emergency situations. On the other hand, if temporary bans become a “normal” practice of supervisors, this could create additional uncertainty in the market. If in more volatile situations a ban can be imposed, market participants might price in this uncertainty and bond yields might therefore increase…

Another drawback of a ban is that it can send a very strong message to the financial markets about the gravity of the situation of the country(ies) for which the ban will be set in place.

It’s only natural for issuers of bonds and stocks to complain about speculators and short-sellers whenever those bonds and stocks decline in value; sovereign countries are no exception to this rule. But precisely because such complaints are so natural, they should, as a rule, be ignored. Even the EU, when it investigated the situation, came to the conclusion that market manipulation is not the problem here: the market is simply doing its job of pricing credit risk. If anything, the market failure took place in the past, when investors (especially European banks) were not properly pricing credit risk.

I don’t blame the NYT for missing a report in a Dutch newspaper, but I’m still stumped as to the source of its assertion that Dominique Strauss-Kahn has been warning about speculation in European sovereign debt. Because the fact is that if you’re looking at the views of big international organizations, the consensus would seem to be that speculation is actually nothing much to worry about at all.


To clarify the two points raised by Dan Hess and CavelCap:

For D.H. As the U.S. issues debts only in its own currency there really can’t be a traditional default. They will try and slowly inflate their way out of the debt… it’s worked since 1913 but I doubt it will go on for another 100 years. I see 10% plus inflation within 10 years.

for Cavelcap: some European countries (U.K. Swiss) issue currency, Most do not (Euro). The Greek, the Spanish, the Italians, can’t print there way out of trouble. They need to either exit the Euro than devalue than reduce wages or else swallow some very bitter pills… like 40% budget cuts… not easy.

Sorry to respond so late in the thread!

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Myhrvold heads to court

Felix Salmon
Dec 9, 2010 14:39 UTC

On September 17, 2008, while the rest of us were running around like headless chickens watching the world come to an end, the WSJ‘s Don Clark ran an important story about Nathan Myhrvold’s patent-troll shop Intellectual Ventures:

Unlike most other pure licensing companies, Intellectual Ventures hasn’t filed patent-infringement lawsuits to help force settlements. But the group lobbying on behalf of tech companies in Washington, the Coalition for Patent Fairness — which includes several companies that have been approached for licensing deals by Intellectual Ventures — says it is only a matter of time…

In an interview at his Bellevue, Wash., headquarters, Mr. Myhrvold acknowledged facing resistance from companies he targets for licenses. But his patent inventory gives him leverage to extract settlements without litigation. “I say, ‘I can’t afford to sue you on all of these, and you can’t afford to defend on all these,’” Mr. Myhrvold said.

Now, two years later, Clark drops the inevitable update: Myhrvold hired a chief litigation counsel in May, and has now started suing:

On Wednesday, Mr. Myhrvold’s firm, unable to secure payments from nine companies, announced three patent-infringement suits. One suit names the best-known players in security software—Symantec Corp., McAfee Inc., Trend Micro Inc. and Check Point Software Technologies Ltd.

Some links would have been nice here: Intellectual Ventures is good about posting links to all the patents and complaints, even if it does make you download various PDF files to find them.

The complaints (here’s the security-software one) include some startling facts about the sheer scope of Myhrvold’s operation:

To date, Intellectual Ventures has purchased more than 30,000 patents and patent applications and, in the process, has paid hundreds of millions of dollars to individual inventors for their inventions. Intellectual Ventures, in turn, has earned nearly $2 billion by licensing these patents.

This is all predictably depressing, and poses, as I said two years ago, the single biggest risk to America’s continued leadership in technology and innovation. Intellectual Ventures might do a bit of R, but it doesn’t do any D. Instead, it just sits there, extracting rents (that’s the polite way of saying “blackmailing”) technology companies who actually want to make things.

The long term repercussions of this will be a competitive advantage for companies based in places like China or Brazil which have much weaker intellectual property laws. It’s sad, because patents, as originally envisaged, were designed to encourage innovation, rather than to stifle it.


@spectre855, to be granted a patent, you don’t actually have to build your invention. You just have to explain your idea for the invention and how it could be implemented. Then you can modify the application for many years, adding changes that other people might have thought of, and lengthening the life of the patent. If you don’t actually build the invention you allegedly create, then it isn’t an invention. And shouldn’t be patented.

Also, many patents are granted for applications, not inventions. If the securities ratings firms get the business school graduates who can’t get high paying jobs with investment banks, and then go on to have no idea how to assess risk and give out AAA ratings to collections of sub-sub-prime loans, the patent office similarly hires engineers who can’t get jobs designing products, and cannot distinguish between invention and application, or even design choice. An example: Apple, I believe, was granted a patent for using a finger swipe to validate that you want to unlock your phone. A good idea, but not an invention, it is just a design choice, but once granted patent protection, can now be used as a weapon. And is, as Apple is suing Motorola for using it in its Android based phones.

A less-than-average engineer who becomes a patent examiner may not understand what is obvious to someone who is trained in a particular art, and patents are granted for features that aren’t innovative, but that any designer would have chosen in the same situation.

And then there is the issue of prior art. Even with google, it seems to be difficult for patent examiners to verify that prior art does not exist. But when it comes to software, it usually does exist, and the burden of proof falls on the patent infringement defendant. Which is expensive and scares off customers, investors, and partners. Granting patents for software is absurd, because the essence of software is that it is a set of instructions for a computer that is designed to be programmed. The first computer should be patented, but every application that uses it is not. If a screw was invented today, it would be patentable, but every use of it should not be, because it is supposed to have many uses.

@staff3, firms may own patents, but it doesn’t mean they created it, or bought it from someone who created it. It just means that they patented it. Not the same thing, and certainly does not increase competition or innovation, as patent abusers like to claim.

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Felix Salmon
Dec 9, 2010 05:24 UTC

“A source close the company tells us Groupon added 4 million email subscribers in the last week” — TBI (The CEO tells the NYT it’s 3 million)

Why does the LA Film School hate locavores? — LA Weekly

Participate in a proper scientific economics experiment by watching cute baby animals — NPR

For a guy who claims to hate bloggers, Aaron Sorkin is a really good blogger — HuffPo

Only 28,000 people are specifically paying to access the Times online — Press Gazette

Only the Daily Show managed to pick up on Bernanke blatantly contradicting himself — Daily Show

Why does OAuth default to letting third parties read my DMs? Is this fixable? — Guardian

What links December 15, February 14, and October 13, in that order? — Auto Insurance Blog


Here’s my thoughts on your Twitter OAuth question:
http://petewarden.typepad.com/searchbrow ser/2010/12/why-user-permissions-dont-wo rk.html

Short version, the only thing that an app needs permission to read is your DMs, so that’s the whole point of the process. The problem is that Twitter’s security model around this is too complex and nobody but developers understands that. We need an even simpler approach to getting user consent to these sort of things.

Posted by petewarden | Report as abusive

Is there a secondary market in Madoff claims?

Felix Salmon
Dec 8, 2010 22:29 UTC

What’s even less probable than the government breaking even on its AIG bailout? How about Bernie Madoff’s investors getting all their money back? That’s what Stephen Gandel reckons might happen:

In the past few weeks, Irving Picard, the bankruptcy trustee in the financial fraud case has issued a flurry of lawsuits and settlements. The trustee netted $500 million on Monday alone in a settlement with Swiss bank Union Bancaire Privee. Picard’s moves are raising the possibility that Madoff investors could get all of their money back and then some. In fact, if Picard is successful in all of his cases, investors in the what has been called the largest financial fraud in history could walk away with a 65% profit.

I doubt, somehow, that Picard will get anything like the sums he’s asking for, which include $9 billion from HSBC alone. But at this point it might well make sense for Madoff’s investors to start investigating how much their claims might be worth. Gandel estimates the total investment losses to be just under $20 billion, with a lower bound of $5.8 billion. That’s more than enough money for hedge funds to sit up and take note: if they reckon that Picard has teeth, I’m sure there are one or two of them willing to buy up claims at a discount. For investors who placed eight-figure sums with Madoff, that could translate to a seven-figure payout. Which would make a very nice present, this holiday season.

Bond-market demonization watch, eurozone edition

Felix Salmon
Dec 8, 2010 19:36 UTC

Did you know there’s a fight to the death going on in Europe? The NYT covers it today, under the headline “Central Bank and Financiers Fight Over Fate of the Euro.” Let’s see if we can spot a theme here:

On one side is the European Central Bank, which is spending billions to prop up Europe’s weak-kneed bond markets…

On the other side are hedge funds and big financial institutions that are betting against those same bonds…

The war keeps escalating as traders position themselves for what some believe is inevitable: a default by Greece, Ireland or perhaps even Portugal…

The head of the International Monetary Fund, meantime, urged Europe to take broader action to fend off speculators…

The speculators keep coming back…

No single hedge fund, after all, can hope to outgun the central bank…

By emphasizing that the central bank is “permanently alert,” Jean-Claude Trichet, its president, has raised the risk for speculators who might try to profit by selling short Greek, Portuguese or Irish bonds…

Speculators have been maintaining large positions in credit-default swaps on Spanish bonds and on the debt of Spanish banks.

OK, that seems pretty clear. On the one side there’s the ECB, nobly trying to defend a young and embattled currency; on the other side there’s hedge funds and traders and big financial institutions—collectively, “speculators”—looking to destroy the euro and collect a big payday, in a manner reminiscent of when George Soros broke the pound.

But who are these speculators? The NYT never specifies. It talks about Pimco selling euro-periphery bonds last year; about JP Morgan clients also being eager to sell their sovereign holdings; and about one hedge fund which made money in the CDS market over the summer and which has now closed its position. The first two can’t really be considered speculators, because speculators are people making a directional bet, rather than simply selling bonds they own and which they fear might fall in value. The hedge fund does count as a speculator, but it’s anonymous, and the size of the trade is not divulged, and it’s far from clear that such funds have any ability at all to move the market.

The NYT also fails to link to any story about the head of the IMF warning about speculators, which is sad, because I’d like to see exactly what he said. Was it this? I can’t see anything about speculators there.

It seems to me that blaming speculators for anything going on in Europe is lazy and unproven. There’s obviously credit risk in various European sovereign bond markets, and those markets are naturally going to trade at levels commensurate with that risk whether they’re full of speculators or not. So long as the ECB remains essentially the only buyer in the market, there will be tension about where the price should be. Real-money investors will tend to consider bonds overvalued and want to sell them at the ECB’s levels: that’s not speculation, that’s just the way that markets work. Yes, such sales put downward pressure on bond prices—as do purchases of protection by investors worried about what might happen in an event of default.

But the fact is that a European sovereign default would almost certainly cause a huge amount of financial harm across the continent—much more than any marginal benefit accruing to short-sellers and speculators. The markets don’t want a default; they’re just trying to determine the probability of a default, and to price assets accordingly.

And by Occam’s Razor, if everything going on in European bond markets can be explained without recourse to evil speculators, then there’s no reason to talk about them at such great length or to demonize them—unless you’re some kind of politician. Journalists should beware “speculator” terminology unless and until they have concrete evidence that what’s going on really is speculation rather than perfectly normal price discovery. So far, I don’t think that evidence exists.


I saw the NYT reporter Joe Nocera on John Stewart’s show were he criticised CDS. What was apparent was that he did not really understand what he was talking about. He was just getting angry – probably because he considers that anything he is too dumb to comprehend must by definition be “evil” rather than a statement on his IQ.

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